As we stated in our bulletin last week, on March 31st, the federal government outlined proposed actions relating to Accountable Care Organizations (ACOs), a key component of the healthcare reform legislation (the Affordable Care Act, or ACA) enacted in March 2010. In this bulletin, we provide some additional information regarding each of the March 31st releases.
Key Aspects of an ACO Under the CMS and HHS Proposed
Rules
The Centers for Medicare and Medicaid Services (CMS) and the
Department of Health and Human Services (HHS) jointly issued proposed rules regarding ACOs. The
proposed rules note that the government hopes to accomplish three
main goals through ACOs: better care for individuals, better health
for populations and lower growth in health care expenditures.
To accomplish these goals, the proposed rules outline certain key
characteristics of an ACO, including the scope and length of an
ACO's contract with CMS, the required governance of an ACO,
assignment of Medicare beneficiaries to an ACO, the payment models
under which an ACO can share in cost savings, and the quality and
other reporting requirements expected of an ACO.
ACO Agreements with CMS. An ACO must enter into a three-year agreement with CMS that is either: (1) a one-sided model (no risk of losses) for two years, then a two-sided model (ACO may receive payment or may be responsible for loss) for the third year, or (2) a two-sided model for all three years. Regardless of the initial model chosen, after the first three-year agreement period, the ACO must participate in a two-sided model.
ACO Governance. An ACO must be a legal
entity responsible for managing and coordinating care for assigned
beneficiaries; have a governing body that is at least 75%
controlled by ACO participants (i.e., providers and suppliers); and
have a manager of operations that is a chief executive whose
appointment/removal is controlled by the governing body. An
ACO's clinical management/oversight must be managed by a
full-time, senior-level medical director who is physically present
on a regular basis in an established ACO location and who is a
board-certified physician. ACO participants must have meaningful
commitment to the clinical integration program (such as financial
or human investment).
Assignment of Medicare Beneficiaries to an
ACO. A Medicare beneficiary will be assigned to an
ACO if the beneficiary's primary care physician is a
participant in the ACO and the Medicare beneficiary receives a
sufficient level of the requisite primary care services from the
participating physician to appropriately designate the ACO as
exercising basic responsibility for that beneficiary's care.
Only primary care services provided by primary care physicians are
considered in determining whether a beneficiary's physician is
a participant in an ACO and consequently whether the beneficiary
should be assigned to the ACO. Primary care services provided by
specialists are not considered. Once a Medicare beneficiary is
assigned to an ACO, the ACO will be held accountable for the
quality, costs and overall care of the beneficiary. The assignment
of a beneficiary does not limit the beneficiary's freedom of
choice. Tax identification numbers will be used to associate
healthcare professionals and providers with an ACO. Primary care
physicians within the respective tax identification number on which
beneficiary assignment is based will be exclusive to one ACO. The
ACO's participating physicians and providers and suppliers must
post signs and provide information to beneficiaries about the
providers' participation in the ACO and about the
beneficiaries' right to opt out of having their data shared
among the ACO participants.
Beneficiary assignment to an ACO will occur at the end of each
performance year, or retrospectively; however, an ACO will be
provided with certain information concerning the expected assigned
population and other information derived from the assignment
algorithm used to generate the three year benchmark for the
ACO.
ACO Payment Models and Shared Savings.
An ACO is paid under both a traditional fee for service method and
a share of the amount saved by the Medicare program as a result of
the ACO's efficient provision of medical services. In order to
receive the shared savings payments, an ACO must meet both the
quality and savings requirements in the rules. Savings otherwise
payable to an ACO are subject to a 25% withhold by CMS to ensure
repayment of potential future losses. The amount withheld is paid
out at the end of the three-year agreement period or forfeited if
the ACO terminates the agreement prior to the end of the agreement
period. An ACO also must establish (annually) a means whereby it
could repay losses to CMS of at least 1% of the ACO's per
capita expenditures from the most recent year. Any ACO that
terminates its agreement with CMS would be required to provide CMS
with 60 days notice of termination, and would also be required to
notify all ACO participants, providers, suppliers, and
beneficiaries.
CMS will establish an expenditure benchmark for each ACO by
creating an estimate using per capita expenditures of Medicare
beneficiaries who would have been assigned to the ACO in any of the
prior three years, which estimate is adjusted for overall growth
and beneficiary characteristics.
An ACO is eligible to receive a shared savings payment of 50%
(under the one-sided model) and 60% (under the two-sided model) if
the ACO exceeds its minimum savings rate and meets the required
quality standards. The proposed rules provide for additional
percentages of the shared savings if the ACO includes a rural
health clinic or federally qualified health center. However, under
the two-sided model, there are also detailed rules regarding the
ACO's shared losses calculations, caps, and offsets of shared
losses against the ACO's shared savings.
For each performance year, CMS will notify each ACO of the
ACO's shared savings or shared loss amounts. Each ACO must then
submit a written request to CMS for its shared savings payment, or
acknowledge its shared losses, along with a certification of the
ACO's compliance with the Medicare Program and ACO
participation requirements. An ACO will have 30 days from the
receipt of the CMS notification to make any required shared loss
payment to CMS.
Quality and Other Reporting Requirements.
Each ACO must have a physician-directed quality assurance and
process improvement committee that oversees an ongoing
action-oriented quality assurance and improvement program. An ACO
will be considered to have met the quality performance standard if
it has reported quality measures and met the applicable performance
criteria for each of the three performance years. The quality
performance standards for the first year are set forth in the
proposed rule. Quality measures for the remaining two years will be
proposed in future rulemaking. Sixty-five measures organized under
five domains to be used in the calculation of the ACO quality
performance standard are contained in the proposed rules. The five
domains are patient/caregiver experiences; care coordination;
patient safety; preventive health; and at-risk population/frail
elderly health.
An ACO that does not meet the quality performance thresholds for
all of the proposed measures will not be eligible for shared
savings, regardless of how much per capita costs were reduced, and
the ACO will be issued a warning from CMS. If the ACO continues to
underperform on the quality performance standards in the following
year, CMS will terminate the ACO's agreement.
As part of its quality measurement and quality requirements,
CMS' proposed rules place emphasis on the use of electronic
health records (EHR) and a new Group Practice Reporting Option
(GPRO) tool. CMS proposes requiring that at least 50% of an
ACO's primary care physicians are determined to be
"meaningful EHR users" by the start of the second
performance year in order to continue participation in the shared
savings program. In subsequent years, CMS anticipates proposing
greater alignment between the shared savings program and EHR
Incentive Program through future rulemaking.
Under the proposed rules, CMS will use quality performance
standards to arrive at a total performance score for an ACO.
Measures would be organized by domain and the performance on each
measure would be scored. The scores for the measures would be
rolled up into a score by each domain. The percentage of points
earned for each domain would be aggregated using a weighting method
to arrive at a single percentage that would be applied to determine
the quality sharing rate for which an ACO is eligible. The
aggregated domain scores will determine an ACO's eligibility
for sharing savings. For the first year of the shared savings
program, performance scores would be for informational purposes
because CMS proposes to set the quality performance standard at the
reporting level. CMS proposes setting benchmarks for each measure
using Medicare fee-for-service claim data, Medicare Advantage
quality performance rates, or, where appropriate, the corresponding
percent performance rates that an ACO will be required to
demonstrate. For each measure, CMS proposes to set a performance
benchmark at a minimum attainment level. The benchmarks would be
established using the most currently available data source and most
recent available year benchmark data prior to the start of the
annual agreement periods.
CMS also seeks comments on whether it should specify a
percentage-based EHR requirement for hospitals.
Certain information regarding the operations of an ACO would be
subject to public reporting, such as ACO participants; leadership;
shared savings performance payments received or shared losses
payable to CMS; total proportion of shared savings invested in
infrastructure, re-designed care processes and other resources
required to support the goals of the ACO program; and quality
performance standard scores.
How ACOs Will Co-Exist with the Stark Law, Anti-Kickback Law,
and Civil Monetary Penalties Law
As stated in our previous bulletin, CMS and the Office of the
Inspector General jointly released a notice requesting public
comment on proposals for the waiver with respect to an ACO of the
application of certain federal laws, with respect to financial
relationships for organizations operating as an ACO. In order to
qualify for any of the proposed waivers discussed below, the
following requirements must be met: (1) an ACO must enter into an
agreement with CMS to participate in the shared savings program;
and (2) the ACO, ACO participants and ACO provider/suppliers must
comply with the terms of the agreement, Section 1899 of the Social
Security Act (Act), and its implementing regulations.
Stark. With respect to Stark, the
proposed waiver applies to distributions of shared savings received
by an ACO from CMS under the shared savings program: (1) to or
among ACO participants and ACO providers/suppliers during the year
in which the shared savings were earned or (2) for activities
related to ACO participation and operations in the shared savings
program, provided such activities are necessary and directly
related to such participation and operations. The proposed waiver
is limited to distributions of shared savings and any other
financial relationships covered under Stark would still need to
satisfy an existing exception.
Anti-Kickback Statute. With respect to
the anti-kickback statute, its application would be waived under
the following situations:
- Financial arrangements created by the distribution of shared savings both within and outside an ACO, but only if the distribution outside an ACO is necessary for and directly related to an ACO's participation and operations under the shared savings program. Any other financial arrangements outside an ACO would need to fit within a safe harbor.
- Financial relationships identified that also implicate Stark and fit squarely within one of the exceptions identified in the notice. While generally meeting an exception under Stark does not immunize conduct under the anti-kickback statute and vice versa, a limited exception to the general rule is proposed.
Gainsharing Civil Monetary Penalty. With respect to the gainsharing civil monetary penalty, its application would be waived in two scenarios:
- Distribution of shared savings received by an ACO from a hospital to a physician, provided that the payments are not made knowingly to induce the physician to reduce or limit medically necessary items or services.
- Any financial relationship between or among an ACO, ACO participants and ACO providers/suppliers necessary for and directly related to an ACO's participation and operations under the shared savings program that implicates Stark and fully complies with one of the Stark exceptions identified in the notice are protected.
The waiver authority granted under Section 1899 of the Act is
specific to the shared savings program and does not address other
similar integrated-care delivery models. CMS has stated that it may
consider waivers, exceptions or safe harbors for other types of
ACOs, integrated-care delivery models, or financial arrangements at
a later date.
CMS recognizes that these proposed waivers do not cover all of the
possible financial arrangements involved with setting up and
operating an ACO. While some of the arrangements may not need
additional protection, others may. Therefore, CMS is also
soliciting comments regarding potentially broader waivers and
waiver design considerations for financial arrangements that would
be necessary to carry out the provisions of the shared savings
program. Some of the topics include: arrangements related to
establishing the ACO; distribution of shared savings or similar
payments received from private payers; use of existing exception
and safe harbor for EHR arrangements; the two-sided risk model; and
beneficiary inducements, among others.
FTC Policy Guidelines for ACOs
The Federal Trade Commission and the U.S. Department of Justice
(Agencies) issued a proposed statement which describes
policy guidelines regarding the application of the antitrust laws
to ACOs. These agencies intend to coordinate their competition
analysis with CMS' review of ACO applications for participation
in the shared savings program.
The proposed statement applies to collaborations among otherwise
independent providers and provider groups formed after March 23,
2010 which seek to participate, or have been approved to
participate, in the shared savings program. The Agencies will apply
a rule of reason analysis (balancing anticompetitive effects
against pro-competitive efficiencies) to an ACO if, in the
commercial market, the ACO uses the same governance and leadership
structure and clinical and administrative processes as used to
qualify for and participate in the shared savings program.
The Agencies will evaluate applicants that meet CMS eligibility
criteria based on their share of services in each participant's
Primary Service Area (PSA). PSA is defined as the lowest number of
contiguous postal zip codes from which an ACO participant draws at
least 75% of its patients. Depending on an ACO's range of PSA
shares, CMS may mandate, or an ACO may choose to seek, an antitrust
review. An ACO will submit any request for antitrust review to both
the FTC and the DOJ, who will then determine which agency will be
the reviewing agency.
The following is a summary of the proposed structure for dealing
with the antitrust analysis for the three possible categories of
ACOs that meet CMS eligibility criteria:
Antitrust Safety Zone. The proposed rules
establish the following "Antitrust Safety Zone" in which
the Agencies will not challenge an ACO's formation and
operations from an antitrust standpoint absent extraordinary
circumstances:
- Independent ACO participants that provide the same service must have a combined share of 30% or less of each common service in each participant's PSA, wherever two or more ACO participants provide that service to patients from such PSA.
- Any hospital or ambulatory surgery center must be non-exclusive to the ACO (allowed to contract or affiliate with other ACOs or commercial payers), regardless of its PSA.
Rural Exception. Even if it results in
the ACO's violation of the 30% threshold described above, an
ACO may include one physician per specialty from each rural county
(as defined by the U.S. Census Bureau) on a non-exclusive basis. An
ACO may include Rural Hospitals (meaning Sole Community Hospitals
or Critical Access Hospitals, as defined in CMS regulations) on a
non-exclusive basis.
Dominant Provider Limitations. Any
dominant provider (with a greater than 50% share in its PSA of any
service that no other ACO participant provides to patients in such
PSA) must be non-exclusive to the ACO. An ACO with a dominant
provider cannot require a commercial payer to contract exclusively
with the ACO or restrict a commercial payer's ability to
contract with other ACOs or provider networks.
Mandatory Antitrust Agency Review of ACOs Exceeding the
50% PSA Share Threshold. The proposed rules require
mandatory antitrust review of ACO formation as follows:
- An ACO that does not qualify for the rural exception cannot participate in the shared savings program if its share exceeds 50% for any common service that two or more ACO participants provide to patients in the same PSA unless, as part of the CMS application process, the ACO includes a letter from either the FTC or the DOJ stating that such agency has no present intention to challenge or recommend a challenge under the antitrust laws.
- Applicants may obtain an expedited antitrust review by submitting certain required documents and information, including the CMS application and supporting documentation, to the reviewing agency. Such information must be received at least 90 days before the last day on which CMS will accept ACO applications for the relevant calendar year.
ACOs Below the 50% Mandatory Review Threshold but
Outside the Antitrust Safety Zone. The proposed rules
allow for, but do not require, antitrust review for ACOs that are
not in either of the two preceding categories. To gain additional
antitrust clarity, such ACOs may, but are not required to, seek an
expedited review from the FTC or the DOJ, which will be completed
within 90 days of receiving all necessary documents and
information. The proposed rules list five types of conduct that an
ACO in such category should try to avoid in order to reduce the
likelihood of an antitrust investigation.
IRS Notice Relating to ACOs
The Internal Revenue Service (IRS) has issued a notice that preliminarily addresses
whether section 501(c)(3) tax-exempt hospitals participating in the
shared savings program through an ACO may be impacted by current
limitations placed on such hospitals under the Internal Revenue
Code. The IRS is soliciting comments as to whether existing IRS
guidance is sufficient for those tax-exempt hospitals and other
organizations planning to participate in the shared savings program
through an ACO and, if not, what additional guidance is
needed.
Participation in an ACO. The IRS
indicated that a tax-exempt hospital's participation in an ACO
may be through a variety of structures, including: (1) membership
in a nonprofit corporation, (2) ownership of shares in a
corporation, (3) ownership of an interest in a partnership or an
LLC and (iv) contractual arrangements with the ACO and/or its other
participants. Regardless of structure, the tax-exempt hospital will
likely be participating along with private parties, including some
that might be considered "insiders" (such as physicians)
with respect to the hospital. To avoid any adverse tax consequences
(such as loss of section 501(c)(3) status or other sanctions), the
IRS advises that tax-exempt hospitals need to ensure that their
participation in an ACO is structured so as not to result in
private inurement or impermissible private benefit.
The IRS will review ACO arrangements on a case-by-case basis, based
on all the facts and circumstances. However, because of the CMS
regulation and oversight of the shared savings program, the IRS
generally expects that it will not consider a tax-exempt
hospital's participation in an ACO to result in private
inurement or private benefit if the following factors are met:
- The terms of the tax-exempt hospital's participation in the shared savings program through the ACO (including its share of shared savings program payments or losses and expenses) are set forth in advance in a written agreement negotiated at arm's length.
- CMS has accepted the ACO into, and has not terminated the ACO from, the shared savings program.
- The tax-exempt hospital's share of economic benefits derived from the ACO (including its share of shared savings program payments) is proportional to the benefits or contributions the hospital provides to the ACO.
- The ownership interest received by the tax-exempt hospital, if any, is proportional and equal in value to its capital contributions to the ACO. All ACO returns of capital, allocations and distributions are made in proportion to such ownership interest.
- The tax-exempt hospital's share of the ACO's losses (including its share of shared savings program losses) does not exceed the share of ACO economic benefits to which the hospital is entitled.
- All contracts and transactions entered into by the tax-exempt hospital with the ACO and the ACO's participants, and by the ACO with the ACO's participants and any other parties, are at fair market value.
Unrelated Business Income Tax and Other ACO
Activities. The IRS also addressed whether the
participation of a tax-exempt hospital in an ACO and its portion of
the shared savings program payments received would be subject to
unrelated business income tax. Unrelated business income could
result if the activities generating the shared savings program
payments are not substantially related to the performance of the
tax-exempt hospital's charitable purposes. The IRS stated that,
absent any private inurement or private benefit, and as long as the
ACO meets all of the eligibility requirements established by CMS
for participation in the shared savings program, it expects that
any shared savings program payments received by the tax-exempt
hospital from an ACO would derive from activities that are
substantially related to the performance of the charitable purpose
of lessening the burdens of government.
The IRS indicated that some tax-exempt hospitals might participate
in an ACO that is conducting activities unrelated to the shared
savings program (such as entering into and operating under shared
savings arrangements with other types of health insurance payers).
The IRS noted that such unrelated activities are unlikely to lessen
the burdens of government. The IRS views any agreement with private
health insurers on behalf of unrelated parties as generally not a
charitable activity, regardless of whether such an agreement is
aimed at achieving cost savings in health care delivery. It
conceded, however, that there are certain other activities that may
further or be substantially related to an exempt purpose of the
tax-exempt hospital. An example provided would be an ACO
participating in shared savings arrangements with Medicaid, which
may further the charitable purpose of relieving the poor or
underprivileged. Since this area may be unclear, the IRS is
requesting comments regarding what guidance is needed regarding a
tax-exempt hospital's participation in other types of
activities through an ACO, particularly as to how exempt purposes
would be furthered in the absence of any safeguards.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.